The court, in splintered voting, said a 1996 law lets the Federal Communications Commission set pricing rules for long-distance companies and others that want to start offering local phone service.

The ruling is a big, although not complete, victory for the government's goal of speedily letting customers nationwide choose their local phone company much as they now can choose a long-distance company.

The Clinton administration had argued that such competition will happen sooner if price rules are set by the federal government rather than by each of the 50 states.

State regulators and companies that now monopolize local phone service had said the pricing rules must be set by the states.

Writing for the court, Justice Antonin Scalia said the Federal Communications Commission has general jurisdiction to implement the local-competition provisions of the Telecommunications Act of 1996.

"It would be gross understatement to say that the Telecommunications Act of 1996 is not a model of clarity," Scalia wrote. "It is in many important respects a model of ambiguity or indeed even self-contradiction ...

"But Congress is well aware that the ambiguities it chooses to produce in a statute will be resolved by the implementing agency ... We can only enforce the clear limits that the 1996 act contains," Scalia added.

Although they lost Monday, state regulators and local phone companies still can return to a lower court and challenge the substance of the federal rules.

In all, four of the eight court members wrote opinions in the case. Justice Sandra Day O'Connor, who long has owned AT&T; stock, did not participate in the decision.

The court also upheld most of the FCC's rules aimed at prohibiting local phone companies from separating parts of their network and then requiring a customer who leases those parts to pay the cost of reassembling them. The commission contends that such "unbundling" imposes unneeded costs on a competitor.

But the justices said the FCC "did not adequately consider" all factors when it passed a rule requiring a local phone company to provide competitors with access to various local network elements. The court concluded that the commission's Rule 319 is inconsistent with the 1996 law.

The court also ruled that the commission can impose a "pick and choose" rule on local phone companies, which allows competitors to buy or lease any service or network element under the same terms as they were provided under any previous agreement — without having to accept the entire agreement.

Supporters of local phone competition hope it will lead to lower prices like the 70 percent drop in long-distance costs after competition was introduced during the 1980s.

Monday's ruling reversed key portions of a federal appeals court decision that said the FCC could not regulate the prices competitors must pay to connect to local phone companies' networks.

Joining the federal government in supporting the FCC price rules were long-distance companies, including AT&T; and MCI, that hope to begin offering local phone service.

Opposing the federal rules were state utility regulators and existing local phone monopolies such as Bell Atlantic and BellSouth.

The vote to let the FCC set the pricing rules was 5-3. Joining Scalia were Justices John Paul Stevens, David H. Souter, Anthony M. Kennedy and Ruth Bader Ginsburg.

Chief Justice William H. Rehnquist and Justices Clarence Thomas and Stephen G. Breyer dissented.

The voting on other aspects of the dispute also was split.

The case is AT&T; vs. Iowa Utilities Board, 97-826.